The Comeback and Competition of the Inner City

Two new studies explore the movement of businesses and people back to the city, but outside the central business district.

In the 1950s and 1960s, America’s inner cities experienced sharp declines as people and businesses moved out to the suburbs. By the early 1970s, one of my urban planning professors at Rutgers went so far as to dub the inner city “a sandbox,” with federal transfers being used to essentially placate disadvantaged residents. But over the past decade or so, inner cities have staged a comeback, leading to what’s been dubbed a “great inversion” as people and jobs move back to and near downtown, and poverty and disadvantage increasingly take up residence in the suburbs.

Still, a debate has emerged among urban scholars as to what kinds of cities have really made a comeback and how much growth continues to be centered in the suburbs. When the economist Jed Kolko crunched the latest Census figures, he found urban revival to be limited to the young, skilled, and affluent (who can afford and are contributing to escalating housing prices), while the suburbs continue to account for more growth.

Two new studies published in Economic Development Quarterly contribute to this important debate by taking a close look at the extent of employment growth in the inner city, and the business clusters that are driving it. The studies are informed by the work of the Harvard business professor Michael Porter, whose research focuses on the role of clusters of businesses, among other factors, in shaping the competitiveness of the inner city.

Competition and employment growth

The first study, by Daniel Hartley of the Federal Reserve Bank of Chicago and Nikhil Kaza and T. William Lester of the University of North Carolina, Chapel Hill, uses Census Bureau data to track employment growth among inner cities in 281 metros between 2002 and 2011. The study defines the “inner city” in two ways. The first, broad definition defines the inner city as all neighborhoods or Census tracts outside the Central Business District in the principal city of a metro area. The second, narrower definition is more in line with Porter’s original definition of the distressed inner city, which is limited to neighborhoods or tracts with median household incomes below 80 percent of the metro median and unemployment rates more than 25 percent higher than in 2000. To get at this, the study uses a special Census dataset, which includes information on where workers work and live. The study identifies competitive inner cities as those that benefitted from job gains across the metro and saw an increase in the share of jobs located in the inner city.

The study finds substantial evidence of an inner-city rebound. Inner cities gained over 1.8 million new jobs from 2002-2011—a growth rate of 6.1 percent, just slightly less than the suburban rate of 6.9 percent. Employment growth in the inner city also surpassed that of the suburbs (3.6 percent vs. 3 percent) during the years 2009-2011, after the economic crisis. Kolko’s analysis of population growth (rather than employment growth) for more recent years suggests a slowdown of this urban revival.

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This growth in inner-city employment is not limited to one part of the country, but extends across almost all regions, according to the study. Inner-city employment increased in eight out of nine Census regions (all but the East North Central, or Rustbelt, region) between 2002 and 2011, as the chart below shows.

This effect was again even more pronounced during the immediate post-crisis period (2009-2011), when six out of nine regions saw faster employment growth in their inner cities compared to their suburbs.

The map below identifies competitive inner cities across the U.S. Overall, the study finds that inner cities in 144 out of 281 metros saw job gains according the broad definition (shown in purple on the map). A smaller group of 85 metros saw gains according to the narrow definition, based on more distressed areas of the inner city (yellow on the map).

While large, dense metros such as New York and San Francisco saw higher employment growth in their inner cities, more sprawling metros such as Dallas and Houston saw faster and more significant growth in their suburbs. Meanwhile, metros such as L.A. and San Antonio—which have been historically dominated by suburbs—saw a notable increase in inner-city employment from 2002-2011. Overall, metros that have experienced an inner-city revival tend to be geographically diverse with above-average high-wage job growth, lower levels of racial segregation, and less job sprawl than other metros.

The revival of the inner city is driven by the growth of high-wage sectors of the economy, the study finds. This is line with other research, which has found inner cities to have higher concentrations of high-skill jobs in finance, media, and entertainment, and even, in some cases, tech. In particular, inner cities have benefited from the considerable expansion of education and medical jobs—the so-called “eds and meds”—which added more than 1.7 million inner-city jobs between 2002 and 2011. My own research suggests that, while eds and meds have added jobs, they are not necessarily important drivers of metro economies compared to tech or creative sectors. On the flip side, food services have added 323,000 low-wage jobs in inner cities, an indication of their divided high- and low-skill economies, and perhaps of gentrification as well.

Inner cities continued to deindustrialize, according to the study, losing 782,000 reasonably well-paying manufacturing jobs between 2002 and 2011. Higher-wage inner-city employment growth is typically tied to nearby anchor institutions, such as universities and medical centers, while lower-wage employment growth in restaurants and retail establishments may reflect the movement of more affluent households back to the city.

Ultimately, the study finds that inner-city employment growth was faster in neighborhoods in the most central, functional, and desirable areas of cities—those that are close to downtown, have the best access to nearby transit, and are adjacent to areas with lots of population growth. This suggests that the urban revival may be increasingly limited to more advantaged areas of the city, while high-poverty neighborhoods face ongoing limitations to economic improvement.

Business clusters in the inner city

The second study, by Mercedes Delgado of the MIT Sloan School of Management and Kimberly Zeuli of the Initiative for a Competitive Inner City, examines the clusters of business and industry in the inner city. To do so, the study uses data from the Initiative for a Competitive Inner City and the U.S. Cluster Mapping Project to examine the relationship between clusters and employment growth in over 300 inner cities from 2003-2011. This time, “inner cities” are defined as economically distressed areas with high concentrations of poverty and unemployment. The study focuses specifically on clusters of traded industries, or higher value-added, higher-wage industries that trade goods and services with other places.

Like Porter, the study notes that inner cities start off at a significant economic disadvantage compared to both their surrounding central cities and metro areas. For example, the average inner city suffers from a 30 percent poverty rate, compared to 17 percent for the average central city and 14 percent for the average metro. Inner cities also have lower incomes per capita, lower education rates, and lower employment levels than central cities or metros.

Despite these economic hardships, inner cities have considerable competitive advantages. Indeed, the study finds that these cities specialize in five key clusters—business services, electronic commerce, education, financial services, and hospitality and tourism. Together, these clusters account for over 200,000 jobs across the 300-plus inner cities in the study. The stronger—or more concentrated—these industry clusters are, the higher an inner city’s employment growth is likely to be. Nationally, the industries with the greatest shares of employment in inner cities include performing arts (24 percent) and apparel (25 percent). Employment growth in inner-city clusters is also higher when the broader city and metro have strong clusters.

Signs of an inner-city revival

Together, these two studies provide substantial evidence of an ongoing inner city revival, which extends beyond the influx of high-skill young talent. This revival is also being driven by large anchor institutions, traded industry, and higher-wage, higher-skill jobs. Even though the economic revival of the inner city spans an array of places, it is most pronounced in larger, denser, more highly educated cities—and particularly in the most functional, accessible, and desirable areas of these cities. Distressed cities and neighborhoods that have been hit hard by deindustrialization continue to be bypassed by this urban revival. Even those cities that are seeing significant urban revitalization still have significant economic and spatial divides that separate areas of concentrated advantage and disadvantage.

About the Author

Richard Florida is a co-founder and editor at large of CityLab and a senior editor at The Atlantic. He is a university professor in the University of Toronto’s School of Cities and Rotman School of Management, and a distinguished fellow at New York University’s Schack Institute of Real Estate and visiting fellow at Florida International University.

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